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The Globe and Mail

Opt-outs undermine dispute resolution: bank ombudsman

Canada's national bank ombudsman has lashed out at the country's two largest banks in its annual report, saying the decision to pull their support of the industry's dispute-resolution office has undermined consumer protection.

The Ombudsman for Banking Services and Investments (OBSI) said the move by Toronto-Dominion Bank and Royal Bank of Canada to opt out of the process and instead hire their own independent firms to handle customer complaints lacks credibility.

"The dispute-resolution process that consumers access needs to be credible, independent, and impartial – not beholden to any one stakeholder group," OBSI said in its annual report, released on Friday. "Allowing banks to choose a dispute resolution provider gives all the power to the financial institution and none to the consumer."

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The remarks are some of the harshest words yet from OBSI after Toronto-Dominion Bank decided in October to no longer participate in the process, after Royal Bank of Canada made the same move about three years ago. Both banks have chosen to hire independent firms to settle customer disputes that can't be solved through dealing with the bank.

Douglas Melville, the banking ombudsman, said there is confusion as to whether those firms chosen by the banks can be held accountable for their decisions. "The reality is there's no clarity right now as to what the expectations are of that other provider, and no oversight," he said.

OBSI, which is funded by the banking sector but operates at arm's-length from the lenders, was set up in 1996 at the behest of government as a way for consumers to get a ruling on disputes with their bank or investment advisers.

The banks must work with OBSI on the investment side of the sector, but are not forced to have their personal banking operations handle complaints through the office. That led RBC and TD to leave amid disagreements with the ombudsman over how some disputes were being settled, and the money the banks were ordered to pay back to customers.

An RBC spokeswoman said on Friday the bank had decided to work with another ombudsman service "to improve the time it takes to resolve customer issues." TD raised similar concerns when it pulled out of OBSI for its consumer banking operations in the fall. TD announced it would use ADR Chambers, a company that provides dispute resolution services, as its external ombudsman. "We believe that [ADR]offers a better proposition for our customers," Paul Huyer, TD Bank Financial Group's internal ombudsman, said at the time.

OBSI has disputed TD's claims that it was taking too long to settle complaints. Sources have indicated that the banks disagreed with the compensation OBSI was demanding they repay to some customers.

The Department of Finance has yet to rule whether banks could be forced to use the ombudsman, or disregard the process and break out on their own. This has led to the "fragmentation of banking consumer protection" in Canada, OBSI's annual report said.

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The World Bank recently flagged the splintering of consumer protection agencies as a problem, citing similar cases in New Zealand and Australia, where consumers face confusion over how to get disputes settled with their banks, while competition between various ombudsman organizations undermines the purpose of their function, which is to protect consumers.

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